LONDON (Reuters) - On a
sunny day in San Francisco last January, AstraZeneca
Chief Executive Pascal Soriot was on his way to the
Westin St. Francis hotel on Union Square to give
investors some unexpectedly good news.

After long refusing to put a date on when the British drugmaker's
sales figures would pull out of a nosedive, Soriot surprised the
market on Jan. 14 with a bold prediction that sales by 2017 would be
back at 2013 levels.

What shareholders did not know at the time was that two days earlier
AstraZeneca had written to U.S. rival Pfizer rejecting its offer to
buy the London-based group for close to $100 billion.

Shares rose on the 2017 sales forecast as investors looked forward
to a time when AstraZeneca would finally put behind it a wave of
patent expiries on its drugs. It was a defiant performance by Soriot
- CEO for little over a year - whose long-term forecast suggested
much of Wall Street had got his firm's valuation all wrong.

"Essentially we believe that we can return to growth faster than
most people have been forecasting so far," he told the annual JP
Morgan Healthcare Conference. "Our next step would be that, by 2020,
we want to launch at least 10 new medicines."

The previous week in New York, Frenchman Soriot and Swedish Chairman
Leif Johansson had met with Scottish-born Pfizer boss Ian Read and
his New Jersey finance head Frank D'Amelio to discuss details of a
possible deal in the neutral ground of the Pierre hotel overlooking
a snowy Central Park.

Those talks in turn had been prefaced by an email and phone call
from Read to Johansson proposing a merger on Nov. 25.

So both sides had plenty of time to develop a war-game for what was
always going to be a politically charged takeover fight, involving
the biggest attempted foreign takeover of a British firm and the
creation of the world's largest pharmaceuticals group - with a
conveniently reduced tax bill.

Yet despite a horde of advisers, Pfizer walked away on May 26
empty-handed, exactly four weeks after going public with its bid
interest.

The fight was actually lost a week earlier after an angry stand-off
on Sunday May 18 in which both sides blamed each other for closing
down talks on a $118 billion offer that was "only" about $8 billion
adrift from the price AstraZeneca wanted.

UNFINISHED BUSINESS

This may not be the end, of course. Under UK takeover rules Pfizer
is allowed to make a new approach in November, while AstraZeneca
could invite Pfizer back into fresh talks on a new offer at the end
of August, if the chorus from its shareholders demanding talks is
loud enough.

It is a prospect some in the Pfizer camp are keen to talk up. "Most
shareholders seem to think that this transaction is a good
value-creating idea and that we are very close on price," said one
person close to the U.S. firm. "I'm still hopeful that by the end of
the year we will see this combination happening."

A person familiar with the matter in the AstraZeneca camp also
admitted: "It’s still alive. There's still a lot of premium (in the
share price)."

Whether Pfizer pounces again and AstraZeneca can escape once more
depends on Soriot's ability to prove his firm's research labs have
what it takes to deliver on his bold promises of growth by 2017 and
a 75 percent increase in drug sales by 2023.

The first step in doing that involves Soriot climbing on yet another
plane to America at the end of the week, this time to Chicago, where
his team will showcase the latest clinical data on its cancer drugs
at the May 30 to June 3 annual meeting of the American Society of
Clinical Oncology (ASCO).

AstraZeneca has already reported some good clinical trial results
for one new lung cancer drug, known as AZD9291, which will be
presented to doctors in full at ASCO.

That leaves the biggest question-mark over MEDI4736, a drug designed
to fight tumors by tapping the immune system, which is being tested
in combination with other medicines and which AstraZeneca reckons
could become a $6.5 billion-a-year seller.

The quality of the clinical data on MEDI4736 will give investors
important clues, but they will also be watching just as closely how
similar drugs perform at ASCO from rivals like Roche, Bristol-Myers
Squibb and Merck & Co.

At the same time, AstraZeneca will look at its own deal-making
options, including potential partnership agreements in cancer and
other areas. It has already said it is exploring such options in
infection and neuroscience.

Whatever the news from ASCO and on deals, however, many AstraZeneca
investors remain deeply frustrated - and puzzled - at the way the
biggest deal in the history of the pharmaceutical industry slipped
away this month, depriving them of a windfall.

The reasons for that lie in the fraught weekend of May 17-18, when,
after two days of grilling for both CEOs in front of two committees
of British lawmakers, Pfizer came back with a sweetened offer of
53.50 pounds a share on the Friday night.

BRINKMANSHIP

Read and his advisers were convinced they had tapped into what
AstraZeneca's shareholders were thinking – indeed, Read met again
with investors after the hearings - and they were sure they had an
offer that would bring their target to the table.

That proved to be a miscalculation.

The new price certainly got AstraZeneca's attention at a lengthy
meeting of its board on May 17 at the London offices of law firm
Freshfields, and led to a phone call lasting more than an hour
between the two sides on May 18, when AstraZeneca made clear it
needed at least 58.85 pounds.

Read's last-ditch act of brinkmanship - issuing a final offer of 55
pounds a share, without warning - failed to break the AstraZeneca
board's resolve and also failed to trigger a decisive investor
rebellion.

It was not the script most investors had expected, not least because
Pfizer had always got its prey in the past, and the initial
maneuvers following its 50 pounds-a-share offer on May 2 also seemed
to play out well for the U.S. firm.

Pfizer's letter to British Prime Minister David Cameron offering
reassurances on jobs and research initially won a warm reception
from the government. The political atmosphere then turned hostile
for Pfizer, however, and AstraZeneca's fightback - playing up its
revitalized pipeline of cancer drugs - brought some solid support
from a few vocal investors.

What happens next will depend on how much pressure Soriot and his
team face from shareholders, some of whom are already demanding that
management pay packages be linked to the company's shares reaching
the 55 pounds share price that Pfizer had offered or the 58.85 that
AstraZeneca reckons it is worth.

Investor ambivalence is highlighted by BlackRock, the biggest
shareholder, which backed the board’s dismissal of Pfizer on price,
but also wants more talks down the road.

AstraZeneca always said it was ready to talk if Pfizer offered the
right price, but it also insisted that key execution risks had to be
addressed or eliminated, principally Pfizer's controversial plan to
make Britain its tax base, without which the financial logic of the
deal would collapse.

Things reached a nadir in the eyes of many of those involved when
Soriot told lawmakers that a merger could cost lives by delaying
vital new cancer drugs, a statement one person on Pfizer's side
described as "poisoning the well".

So could things have turned out differently? Yes, according to one
source in the AstraZeneca camp, who said Pfizer should simply have
moved faster. Read was right to spot the promise of AstraZeneca's
cancer pipeline but too slow to act.

The real tactical error, he said, was not to have gone with a bid in
November or pushed harder in January, before AstraZeneca shares took
heart from Soriot's audacious forecasts.

(Additional reporting by Anjuli Davies and Soyoung Kim; Editing by
Will Waterman)